Investement inflows and sustainable development in a natural resource-dependent economy
In the current age of trade and financial openness, remote and poor local economies are becoming increasingly exposed to inflows of external capital. The new investors - enjoying lower credit constraints than local dwellers - might play a propulsive role for the local development. At the same time, inflows of external capitals can produce environmental externalities on local natural resource-dependent activities. We analyze a two-sector model where both sectors damage the environment but only one relies on natural resources. We assess under which conditions the coexistence of the two sectors is compatible with sustainable development and we investigate the effects of environmental regulation and of external capital investment incentives on the welfare of the local populations.
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